People can't keep their hands off Graham Packaging. Graham designs, manufactures, and sells blow-molded plastic containers for a slew of consumer goods, including food and beverages, automotive lubricants, and household and personal care items. Graham's 90-plus manufacturing plants dot the Americas, Europe, and Asia, to supply such multi-national customers as Clorox, Danone, and PepsiCo. About one-third of plant operations are set onsite at customers' production facilities; its top 20 customers represent nearly 70% of sales each year. Reynolds Group Holdings, an affliliate of New Zealand's Rank Group Limited, acquired the packager in 2011, for about $4.5 billion.
Graham's earnings are impacted most significantly by the swing in availability and price of high-density polyethylene (HDPE) and polyethylene terephthalate (PET) -- core materials used in manufacturing packaging. Although an increase in their costs can be difficult to pass on to established customers, extended-period contracts typically call for a decrease to be reflected in lower prices, and consequently depress net sales when volumes are flat. A dip in sales and earnings can also be tied to unfavorable exchanges rates.
Rolling forward, Graham is targeting end markets where it can capitalize on the conversion of metal, glass, and paperboard packaging to plastic. Industries in food and beverage, and household goods lead in packaging makeovers that aim to differentiate their products from those of rivals as well as reduce their weight (to trim transportation costs). The company generates approximately 80% of its revenues from the intensely competitive food and beverage, and household goods packaging segments, where the bottle is sometimes more important than what is in it.
Although Graham is well-established in North America, it has accelerated its presence in Europe, South America, and Asia, regions that are picking up their repackaging pace. One-third of the company's manufacturing facilities now operate outside of the US. Expanding in 2011, Graham purchased the assets of Italy-based Techne - Technipack Engineering out of liquidation for €8.8 million (approximately $12.8 million). Techne builds extrusion blow molding machines for applications largely identical to Graham. Going forward as Techne - Graham Packaging Italia, the molding-machine maker counts more than 1,000 machines installed with 200-plus customers spanning some 70 countries.
Graham moved into Asia in 2010 by purchasing China Roots Packaging from Malaysian-based PCCS Group Berhad for $15 million. The Guangzhou, China-based operation manufactures plastic containers and closures for a handful of global marketers of food, health and personal care, and petrochemical products. Closer to home, the company also purchased Chicago-based Liquid Container, a maker of HDPE and PET rigid plastic containers, in late 2010 for approximately $564 million. Liquid Container strategically deepened Graham's manufacturing capacity and customer base within the food and consumer products end markets, positioning the company to drive new packaging conversions.
Private equity firm Blackstone Group previously owned a 61% stake in Graham, which went public in 2010. Like other packaging manufacturers, the worldwide credit crisis had crimped both debt refinancing alternatives and renewal of credit and loan facilities. Its underperforming IPO raised a little more than $166 million, less than half of the $350 million Graham anticipated, dashing the company's objective to repay some of its term loans and other debt (about $2.4 billion). – less